Nike is looking to recapture its past magic. Investors cheered as the shoe giant announced Thursday it had hired company veteran Elliott Hill out of retirement to become its next CEO, with the stock jumping 8% in extended trading Thursday and remaining up from the previous day’s close on Friday morning. Hill will replace the retiring John Donahoe, whose tenure had a promising beginning before an ambitious direct-selling strategy opened the door to toughening competition and flagging sales.
Donahoe was lauded for deftly leading the shoe giant through the COVID-19 pandemic, and this was reflected at the time in the company's share price. After Donahoe took the helm in January 2020, Nike's stock more than doubled, peaking at an all-time high of $177.51 in November 2021. It’s been a steep fall from grace since, however, with the stock down 24% year-to-date and hovering just above the $80 mark at Thursday’s close. As of Friday morning, the stock was up 6% and trading just below the $86 threshold.
Donahoe, the former CEO of eBay and ServiceNow and an alum of consulting giant Bain & Company, was hired to bring Nike fully into the digital age. Under his watch, Nike ruthlessly cut out middlemen, ending relationships with more than half of the company’s retail partners and limiting the flow of sneakers to places like Amazon, Zappos and even Foot Locker, as detailed in a recent feature from Bloomberg.
At first, the transformation worked. Last year, the company posted record sales of $51 billion.
Since then, however, longtime competitors like Adidas and Puma, as well as upstarts such as Brooks, Hoka and On, have taken up shelve space as Nike has disappointed fans accustomed to the company churning out new models.
At its latest earnings call in June, Nike said it expected sales to drop 10% during the current quarter, far worse than the 3.2% decline analysts had expected.
Plans of $2 billion in cost-cutting, which included laying off 2% of Nike’s workforce, didn’t stem the tide. Insiders complained about a brain drain at a company known for fiercely protecting its history and its innovator status.
Investors believe Hill can lead turnaround
Investors appear optimistic, though, that the Oregon-based company can find another gear under Hill, who started at Nike as an intern in the 1980s and last served as president of the company’s consumer and marketplace division.
“In our view, Nike needs someone with a fresh perspective to lead it through the next strategy and accelerate the focus on product,” Lorraine Hutchinson, a managing director and retail analyst at Bank of America, wrote in a note Friday morning. “We think Hill's [30-plus-year] history with the company in senior roles across the organization bodes well for the effort to rejuvenate innovation, rekindle wholesale relationships, and rebuild sales. We maintain our Buy rating and think this announcement is the first step forward to accelerate the turnaround.”
Nike co-founder and chairman emeritus Phil Knight also weighed in, saying Hill’s understanding of the company is exactly what the shoe maker needs.
“We’ve got a lot of work to do,” he said, “but I’m looking forward to seeing Nike back on its pace.”
As Fortune’s Amanda Gerut reported, Nike is giving Hill a $27 million payday to make that happen. Shareholders will hope to see a bang for their buck.
